Over the weekend, the New York Times magazine had this article[1] about pay-day lending, and how litigation efforts shaped up to shut down the industry that primarily feeds off of the working poor, in North Carolina.

The article[2] prominetly featured Carlene McNulty[3], the director of litigation for the N.C. Justice Center, and her years of work of using the courts to shut down scrupulous lenders in the state. The payday industry is trying to get a foothold back in the state, with legislation introduced[4] (but not passed) last year that would have allowed the high-interest loans back in the state.

From the article:

In 2003, Tonya Burke was living in North Carolina with her two children when she got into financial trouble. She had fallen $500 behind on her rent and utilities, and neither of her boys’ fathers was able to chip in. Then she needed to take time off from work when her younger son, who was only 8 months old, had to have emergency intestinal surgery. After his recovery, she started working for $11 an hour as a secretary, “but my paychecks weren’t enough to cover the back bills and the new ones too,” she says. “I was at a point in my life where I didn’t want to ask anyone else for help.” There was a payday lender across the street from her office. “It seemed like a good solution.”

Even though North Carolina made payday lending illegal in 2001, five lenders got around the law by affiliating with out-of-state banks to offer short-term, high-interest loans. So Burke was able to walk into a storefront owned by Nationwide Budget Finance and leave with a cashier’s check for $600. When the loan came due on her next payday, however, she couldn’t pay it and immediately began to fall behind on the fees. So she took out another loan to cover the first one. And then took out another to cover that one — and then another and another. Eventually she wound up with seven loans, each for only hundreds of dollars, but with annual interest rates of 300 to 500 percent. It wasn’t long before the lenders started calling, she says, threatening with jail if she couldn’t make her payments.

Worried for herself and her children, Burke eventually found her way to Carlene McNulty, a consumer rights lawyer at the North Carolina Justice Center. McNulty had heard about many cases of people who found themselves buried under the fees of payday loans. “Our Legislature said: ‘Payday lending is harmful to consumers. Get out of North Carolina!’ ” she told me. “But they were still here, just as if the law had never changed.”

Payday loans are often advertised as a short-term lift that helps keep the lights on or allows you to stay in school. But borrowers often become trapped in a debt spiral. According to a new report from the Consumer Financial Protection Bureau, the government’s financial watchdog, about 50 percent of initial payday loans play out into a string of 10 or more. “One could readily conclude that the business model of the payday industry depends on people becoming stuck in these loans for the long term,” the C.F.P.B.’s report said.